The Effect of the Closure of the Double Irish Arrangement on the Location of U.S. Multinational Companies’ Profits

Abstract In 2015, the Irish government announced the closure of the Double Irish; one of the largest tax loopholes used by U.S. multinational companies, giving existing users until 2020 to comply. Using U.S. administrative corporate tax data, I provide novel estimates on profit shifted back to the United States after closure of the Double Irish. I estimate that firms that used the Double Irish redirected $59 billion in royalty payments to the United States in 2020, the first year of full closure. To disentangle the effect of loophole closure from other major international tax reforms, I propensity score match to a comparable control group. Using this comparable control group, a difference-in-differences analysis suggests the average Double Irish user reports $609 million more in royalty payments after full closure. I use a log specification to demonstrate royalty payments shifted, although large, are driven by outliers. Multinational companies in my treated group funneled an estimated $1.2 to $1.4 trillion in profits to low-tax jurisdictions via the Double Irish from 1998 to 2018. The royalty payments redirected to the United States comprise 31 to 38 percent of profit within the Double Irish arrangement in 2018, meaning many Double Irish users continue to hold large amounts of profit abroad. Lastly, my estimates on the size of the arrangement suggest the current literature may underestimate the U.S. tax base shifted abroad. JEL Classifications: F23, H25, H26, H32